When entrepreneur Moti Shniberg asked one of his artist friends how he expected to send his child to college, the artist responded by asking him to buy some of his work. "That's when he realised that artists don't do financial planning," says Pamela Auchincloss, chief executive of the Artist Pension Trust (APT).

Shniberg's exchange with his friend marked the birth of the APT, an investment scheme that provides artists – many of whom struggle to make a living, let alone plan for retirement – with some financial security in old age.

When the scheme was first set up five years ago in New York, its prospects were dim. Could the concept – a mutual fund in which artists invest in their own future – take off? Yet it has, and the APT now operates eight trusts in 60 countries. Some 1,100 artists have deposited 4,500 pieces, with a total value of about $50m (£30m).

From the outset it had some of the big guns of the art world supporting it. Former San Francisco Museum of Modern Art and Whitney Museum director David Ross provided the art expertise, while Shniberg and economist Dan Galai ensured it had a firm financial footing.

To participate in the scheme, artists invest 20 works over a 15- to 20-year period. The artist remains the owner of his or her works, which are held in the trust's possession until they are sold. Once the artworks are sold, each artist receives regular annual payments: 40% of the net proceeds from the sale goes to the artist; 32% goes into a pot from which the artists receive a pro-rata share linked to their investment; and 28% is retained by the APT to cover its costs and distribute among its 120 financial backers (who have provided $10m in funding so far). The 28% equates to a 0.6% annual management fee over the 50-year life of the fund.

Aimed at emerging to mid-career artists, the APT has some high-profile artists on its books such as Jane and Louise Wilson, Mike Nelson, Goshka Macuga and Richard Wright, who have all been short-listed for the Turner prize.

Each trust must recruit 250 artists before it can sell any art but membership is not open to everyone, with participants hand-selected by the APT's art specialists.

Galai, an economist specialising in risk, worked out the basic return structure based on the Mei Moses Fine Art Index. Assuming an annual 15% increase in the art's value and an initial average value of $5,000 to $10,000 per piece, he estimates that payouts to artists could total $500,000 to $1.5m each.

The venture has reached a crucial stage: the New York trust is the first to close to new members and will start selling art next year. It's about time – Auchincloss admits she gets phone calls from artists asking when they are going to get their first cheques.

The trust does not worry about artists leaving when they become famous. Ross once said if that happens, APT would throw a party, because it would have accumulated several works whose value had suddenly jumped. Once invested, art cannot be retrieved.

The London trust has signed up 175 artists and is expected, along with Berlin and Los Angeles, to close by the end of 2010. The APT is already planning the next generation of trusts, with four covering Europe, the Americas and east and west Asia. For these the investment period is to be shortened to 10-15 years.

Many other plans are under discussion; for example, the APT – which is owned by MutualArt, a holding company – is considering a stockmarket listing to tap into the appetite for art investing, which is seen by some as more resilient than other investments.

A more radical plan, advocated by Auchincloss, is to turn the venture into a "fully integrated financial services company" offering loans, mortgages and financial advice to artists. "I'd call it the APT bank – although everyone says don't call it a bank," she says.

Case study: Trusting in an investment for the future

Duncan Marquiss

Scottish artist Duncan Marquiss, 30, joined the Artist Pension Trust in 2006 after being approached by Kay Pallister, then director of the London fund. They had known each other since the 2003 Venice Biennale, where his work was shown in the Scottish Pavilion co-curated by her.

"When [the trust] first approached me, it sounded like quite a strange thing," he recalls. "But as Kay was involved, that gave it some legitimacy. I went and looked at other artists who were participating and I knew a lot of them. That reassured me."

He was attracted to the scheme because it allows him to build up a collection of his work that will be stored securely. "It's a way of archiving work," he says, "another platform for people to know about your work, and it will hopefully sustain my practice." He thinks it's not very different from working with a gallery, which typically take a 50% cut on art sales.

He is looking forward to the financial benefits. "It is offering some kind of structured investment for the future. There are quite a lot of good artists involved. I would be surprised if their art didn't sell."

So far, he has deposited a drawing and five video works, including Clay Wall, a 12-minute video made at a cost of £13,000 (subsidised by the Arts Council).

Marquiss is represented by Dicksmith Gallery in London and Galerie Peter Kilchmann in Zurich. He hints at potential conflicts when it comes to choosing work to put into the trust: "Galleries want as much work as they can get; they run a business."

He supplements his income by playing guitar in Glasgow's Phantom Band. "I see [APT] as some attempt at planning for the future, which is very hard to do for an artist. Your income is erratic."

Is it a safe investment, and if so how do I join?

•Who can join the Artist Pension Trust? Artists are selected by curatorial committees. They are usually invited, but can also approach the trust directly and then be assessed by its art experts.

•Must an artist have sold a certain number of works in order to be considered? No. Selection is decided by the view of the "highly qualified art professionals who serve on the curatorial committees". Sometimes the APT takes people straight out of college if they show a lot of promise.

•What are the benefits of investing in the APT? Participating artists will get regular annual payments once the trust starts selling artwork. The art will be sold when the time is right. There are no up-front costs for the artists, and APT membership raises their profile. Unlike a gallery, APT will not drop artists if their work does not sell.

•What are the drawbacks? It will take several years before artists start reaping financial benefits. Each of the eight trusts will only start selling when it has reached full capacity of 250 artists. The more successful artists inevitably end up subsidising less successful ones. But it is possible to leave the trust. Artists who leave will still benefit, on a pro-rata basis, from their past investments.

•How risky is the investment? There is no formal regulation, and no one will be able to seek compensation for "mis-selling". But it is unlikely the APT will run off with the art, as the art world is a close-knit community.